2024 (4) TMI 433 - AT - Service Tax

Benefit of service tax exemption - Works contract service - Composite contract - denial of benefit on the ground that the road so constructed was a part and parcel of composite contract and no separate price bifurcation was available on record and hence the Appellant was not entitled for availing benefit of road construction under works contract service - whether the present contract is a composite contract or a contract segregating various items of work while indicating the amounts charged for each activity? - HELD THAT - In the case of M/S LEOTRONICS SCALES PVT. LTD. VERSUS CCE, JALANDHAR (HQ. AT CHANDIGARH) 2020 (4) TMI 146 - CESTAT, CHANDIGARH Chandigarh bench has observed that The present roads have been constructed to facilitate the movement of the transport vehicles to weigh bridges and is not a part of the residential complexes, therefore, its value cannot be subjected to service tax and the appellant has rightly excluded the same from the total value of construction of weigh bridges in claiming the abatement under the respective notifications. Undisputedly the appellant entered into a sub-contract with M/s Subhash Infra Engineers Pvt. Ltd. for this item of the work. They have produced the invoices raised by the sub contractor upon them for the work sub contracted. The fact about allocation of this work to sub contractor by the appellant is not disputed by the revenue in the present case. That being so, the finding recorded by the authorities below that the contract was composite contract for entire project could not be upheld. Further from the fact that value of contract between the appellant and their service recipient is required to be determined in two manners as per the clause 5.1, and the lower of two values has to be adopted, clearly show that the both the parties to contract, i.e. appellant and Lalitpur Power Generation Company Ltd. viewed that contract could be vivisected into sub contracts, to be executed by the sub contractors. It is settled position in law that the contract should be viewed in the context they are entered and as per the understanding of the parties to the contract. It is also not the case of revenue that value of contract was determined in terms of the (ii) of Clause 5 as per which the total value of contract was to be restricted to Rs 675 crores. No finding in this respect has been recorded in the impugned order. In absence of any such findings, there are no merits in the conclusion arrived by the lower authorities that it was a composite contract. The impugned order is set aside - appeal allowed.

Summary

Issues Involved:
1. Whether the construction of the road was a separate activity or part of a composite contract.
2. Applicability of service tax on the construction of the road.
3. Whether the extended period of limitation is invocable.

Summary:

Issue 1: Separate Activity or Composite Contract
The Appellant argued that the construction and strengthening of the road from Lalitpur National Highway to the project site was specifically mentioned as a separate activity within the scope of work in the contract agreement with M/s LPGCL. The Appellate Authority, however, held that the contract was a single composite contract, and the construction of the road was part of this comprehensive contract. The Tribunal found that the construction of the road was indeed identified as a separate activity in the contract and that the value of this work could be determined separately based on the sub-contractor's order value plus 7.5% markup.

Issue 2: Applicability of Service Tax
The Lower Authorities and the Appellate Authority concluded that service tax was leviable on the gross amount charged for the construction, including the value of road construction, based on para 14.5 of CBEC Circular No.B-1/6/2005-TRU dated 27.07.2005. However, the Tribunal observed that the construction of roads is excluded from the definition of "Commercial or Industrial Construction" u/s 65(25b) and "Works Contract Services" u/s 65(105)(zzzza) of the Finance Act, 1994. The Tribunal noted that since the construction of the road was recognized as a separate activity in the contract, the value of the road construction should not be included in the gross taxable value for service tax purposes.

Issue 3: Extended Period of Limitation
The Appellant contended that they were under a bona fide belief that service tax was not payable on road construction services under the category of works contract. The Tribunal referenced several case laws, including Padmini Products vs. Commissioner of Central Excise, to support the argument that the extended period under proviso to Section 11A(1) is not invocable in cases of bona fide belief.

Conclusion:
The Tribunal set aside the impugned order, holding that the construction of the road was a separate activity and not part of a composite contract. Consequently, the value of the road construction was not includible in the gross taxable value for service tax purposes. The appeal was allowed, and the demand for service tax and penalties was quashed.